Sunday, January 24, 2010

There was another big sell-off in the markets on Friday under considerable downward momentum. Since the 1/19/10 primary wave [2] peak, the S&P 500 has traded nearly 60 points lower.

In my estimation there are two options to describe the current market action; wave (v) is nearing completion or the "3rd of a 3rd" of wave (iii) is completing. In the 1 minute chart above, detailed labellings are provided for the former option while the latter is highlighted by the alternate count. Due to the sharpness of the sell-off Thursday 1/21 and the oversold condition of the market, I believe this primary count is the best count.

Note that the primary is labeled as if iii of (v) completed. This is valid from a wave perspective and especially supported when considering the current rally in the E-mini S&P 500 futures as shown in the 1 minute chart below since last Friday.

The E-mini has gained 10 points since its low Friday afternoon.

But given the considerable downward momentum seen Friday, there is a good argument to be made for the alternate count in which [3] may or may not be complete. Looking at the future corrections and sell-offs following the current decline is the best way to determine whether or not this alternate is unfolding. There would need to be multiple 4th waves with far lower prices ahead to justify this count. But given the resistance the market is currently immersed in, as is evident in the below 30 minute chart, this becomes somewhat doubtful.

In addition, one would expect a gaping "3rd of a 3rd" wave and this certainly did not occur. The sell-off Friday was not even as sharp as the above iii of (iii) wave.

If the primary count is unfolding, a significant reversal should be expected. This is what traditionally follows 5th wave extensions and is a distinctly different result than what would follow an unfolding alternate.

The primary count above seems to be the best for now. Because the larger structure does not look complete, I expect waves iv and v of (v) to complete soon. Following the completion of wave [i], there should be a sharp zigzag correction higher retracing most of [i].

There was another big sell-off in the markets on Friday under considerable downward momentum. Since the 1/19/10 primary wave [2] peak, the S&P 500 has traded nearly 60 points lower.

In my estimation there are two options to describe the current market action; wave (v) is nearing completion or the "3rd of a 3rd" of wave (iii) is completing. In the 1 minute chart above, detailed labellings are provided for the former option while the latter is highlighted by the alternate count. Due to the sharpness of the sell-off Thursday 1/21 and the oversold condition of the market, I believe this primary count is the best count.

Note that the primary is labeled as if iii of (v) completed. This is valid from a wave perspective and especially supported when considering the current rally in the E-mini S&P 500 futures as shown in the 1 minute chart below since last Friday.

The E-mini has gained 10 points since its low Friday afternoon.

But given the considerable downward momentum seen Friday, there is a good argument to be made for the alternate count in which [3] may or may not be complete. Looking at the future corrections and sell-offs following the current decline is the best way to determine whether or not this alternate is unfolding. There would need to be multiple 4th waves with far lower prices ahead to justify this count. But given the resistance the market is currently immersed in, as is evident in the below 30 minute chart, this becomes somewhat doubtful.

In addition, one would expect a gaping "3rd of a 3rd" wave and this certainly did not occur. The sell-off Friday was not even as sharp as the above iii of (iii) wave.

If the primary count is unfolding, a significant reversal should be expected. This is what traditionally follows 5th wave extensions and is a distinctly different result than what would follow an unfolding alternate.

The primary count above seems to be the best for now. Because the larger structure does not look complete, I expect waves iv and v of (v) to complete soon. Following the completion of wave [i], there should be a sharp zigzag correction higher retracing most of [i].

My trading philosophy is 95% based on my own Elliott Wave analysis of the S&P 500. I try to keep my analysis and trading as simple as possible and do not use trend lines, channels, or definite retracement, price, or time targets. To me, inspecting the proportionality and symmetry of a market's price structure is the key to mastering the principle; it is through this that low-risk, high-reward trading opportunities are found.

Because they are the only things I look at when trading, the quality of the charts I post on this blog are very important to me. I think you will find my work to be the best Elliott Wave analysis of the S&P 500 on the internet.